BHP fears risk in Guinea project

BHP Billiton is spending money hand over fist expanding its global production capacity. But the big spending stops when it comes to an alumina project in Guinea where the company and its Canadian and Middle Eastern partners have all but stopped work on a $US5.2 billion ($A4.9 billion) alumina project, despite having already spent more than $US700 million on preparatory works.

The division was the runt of the litter in BHP's record-breaking June-year profit of $US21.6 billion. Underlying earnings before interest and tax from the division was a paltry $US266 million, down by $US140 million on the previous year. The contribution was the smallest of any division and was despite the benefit of higher alumina/aluminium prices.

The division has been plagued by power issues at its aluminium smelters in southern Africa and exchange-rate movements. BHP has nevertheless continued to invest heavily in the division. But that too has caused headaches, with the company recently revealing a shocking 55 per cent increase to $US3.4 billion in the cost of the Worsley alumina refinery expansion in Western Australia.

Guinea in the meantime has its own challenges and analysts consider it is more likely that sovereign risk issues, more than anything else, have prompted BHP's very soft, approach in the country.

The political situation remains tense in the West African nation following the election last November of President Alpha Conde. His election ended military rule in the country but political and ethnic tension continues. There was an assassination attempt against him in mid-July and his government has demonstrated it wants to extract a greater share of the country's minerals wealth from foreign-owned operators.

BHP yesterday had nothing to add beyond a statement it made last year that it remained 'committed to and supportive of this Guinean alumina development'.